Ken Research announced its latest publication on, “Saudi Arabia 2016 Construction Outlook: Compare Rising Infrastructure Megaprojects Opportunities with Increasing Project Risk”,offer insights on the changing trends and key issues within the Infrastructure and Construction industry in Saudi Arabia. The publication includes an insightful analysis of recent & strategic trends, project financing, project risks& returns, leading players, opportunities and challenges within theInfrastructure and Construction industry in Saudi Arabia. The analysis of the aforementioned trends has been done across main sectors: Real Estate; Transportation; Energy, Industrial & Utilities; and Social Infrastructure,within the industry with comprehensive overview of key sectors: Power sector, Railways sector and Real estate-Mixed Use sector.

Economic Environment of Saudi Arabia

Saudi Arabia’s economy is majorly an oil-based economy. With oil reserves almost one-quarter of the world oil reserves, Saudi Arabia ranks second in the world. It is the second largest producer of oil and leading exporter of oil. The petroleum sector accounts for the more than 90% of both budget revenue and export earnings as well as contribute around 50% of the GDP. To diversify the economy, the govt. of Saudi Arabia is encouraging the private sector growth. After experiencing surging affluence on account of rising oil prices, Saudi Arabia’s economy is at an inflection point today, exploring opportunities for more dynamic economy through productivity & investment led transformation.

Looking at key economic snapshot of Saudi Arabia, in 2016, the country is home to 30.8 million people. With USD 1.6 trillion, Saudi Arabia’s global ranking is seventy eighth as per nominal GDP. The two main sectors contributing to the GDP is oil and service sector. Govt. is focusing on expanding and developing service sector to diversify the economy and to provide employment to the Saudi people leading to sustainable future growth of the country. Consumption and investment has expanded although with a declining rate. The country has admirably very low level of inflation from a long period of time. Foreign investment in many sectors is either prohibited or capped. Currently, FDI inflows amount to 8 billion USD. Gradually, the financial sector has undergone transformation, with restrictions on foreign investment in financial sector being eased.

Brief Overview of the Construction Industry in Saudi Arabia

The growth and development of a country and its economy is unpinned largely by the development of its construction industry which provides for relevant infrastructure required in different sectors of the economy as well as society. Fortunately Saudi Arabia is blessed to have a strong and huge construction industry in the Middle East. The increasing importance to the construction industry by Saudi Arabia’s Govt. is also due to their commitment to reduce the economy’s dependence on oil and shift it to non-oil sectors.

Looking at the current scenario of the construction industry, Govt. is coming up with enormous development plans to broaden the country’s infrastructural base. Govt. has allocated USD 44 billion for investment in transport, telecommunications, water, agriculture and other related infrastructure, with main focus on the transport development and housing programs. Leading initiatives in this regard include White Land Tax Initiative and Transport Infrastructure Development plan in Riyadh including construction of 178km of six lines and 85 stations, expected to be completed by 2018. A large number of megaprojects are also in line absorbing more than 80% of the investment. PPP model, increasing efficiency of the industry, holds significant importance as a financing method. Regulations related to foreign investment have also been eased leading to influx of international companies in the industry. Despite vast growth opportunities facing the industry, it has some weaknesses of its own such as high initial investment cost as well as cost and time overruns especially during the construction period, which slows down the pace of industry growth.

Major Market Players in the Construction Industry in Saudi Arabia

Saudi Arabia’s economy is largely a closed one, with foreign investments restricted in many sectors of the country. However, aiming to expand the country’s infrastructure, Govt. has eased these restrictions. Hence the announcement of huge number of construction plans in Saudi Arabia is now offering vast opportunities to international companies who wish to enter the Middle East Region. Especially the increasing prevalence of PPP model has increased the role of private players in the construction market and has reduced the burden on govt.

Over the review period (2010-15), construction industry in Saudi Arabia has shown record-breaking performance with consistent increase in its value as well as their contribution to the nation’s GDP. In the next five years, the future of the construction industry seems even brighter largely owing to Govt.’s commitment for the growth of the industry and diversification of the overall economy away from oil and petroleum.Looking at sectors within the industry, residential, energy and utilities construction is expected to receive more attention in coming years to meet the demands of increasing population. Development of renewable energy sources will receive special focus.

Construction industry in Saudi Arabia is expected to remain attractive and show decent growth rates on account of following factors, leading to the future growth of the industry:

Govt. aiming to diversify the wider economy largely dependent on oil and petroleum

Increasing population and rapid urbanisation

Ever demanding oil & gas industry

Huge number of upcoming construction projects by the govt. as well as many megaprojects

Government’s efforts to reduce housing shortage in the country ( White Land Tax Initiative)

Large number of international companies entering the industry.

However, there are risks and challenges to Saudi Arabia’s construction industry that can severely impede the growth of the industry such as falling oil prices, large budget deficit, economic slowdown and military intervention in Yemen. Hence, tackling them becomes important for realizing the vast growth opportunities in the industry to its full potential.

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